Editor's Column: A Little Bit of Fear Could Go a Long Way

For possibly the first time, credit unions last week testified before a joint subcommittee hearing on the Communities First Act, legislation that was drafted by a former community banker primarily to benefit community banks. Kudos to the trades for getting the invites; that’s a first step toward gaining greater recognition in Washington.

However, the CU representatives did not take full advantage of the opportunity. The community bankers repeatedly brought up the “unlevel playing field” argument, and CUNA and NAFCU still didn’t say they’d oppose the Sub S tax break expansion or any other part of this banker regulatory relief bill if CUs did not receive equal consideration.

Rep. David Scott pressed NAFCU President/CEO Fred Becker as to whether NAFCU was actively opposing the legislation. While before the lawmakers, Becker said credit unions merely wanted balanced legislation between credit unions and bank authority enhancement. NAFCU’s written statement read, “We cannot support it at this time.” CUNA President/CEO Bill Cheney followed up but didn’t directly answer the question either. Take a stand: If CUs don’t get balance, we will oppose it. Be assertive without being obnoxious.

Former CUNA chief Dan Mica would say that credit unions need to be not only respected but a little bit feared on Capitol Hill. In a 2008 interview with reporter Claude Marx, he said, “We're in a position that there is strong recognition of who we are and what we do. We are recognized, but we are not yet feared; that is a big difference. The National Rifle Association is feared, the AARP is feared. The CU system has not been as proactive as we may have to get, as some of the banks have been.”

CUNA has gone out on a limb with a handful of candidates each election cycle. Some efforts have been successful, and some have not, such as CUNA’s PAC contributions to the opponent of Rep. Blaine Luetkemeyer, who introduced the Communities First Act. Luetkemeyer is a former community banker and worked against credit unions while he served in the state House. This was smart because CUs certainly weren’t losing a fan by opposing him and they had a shot at getting a credit union-friendly representative elected.

But more than three years later, CUs have shown little progress in moving toward feared. Unfortunately, last week’s public testimony was of little help in that direction. The community bankers made the standard banker comments opposing the credit union tax exemption and expanding business lending authorities. Rep. Maxine Waters admonished the banks to come together with the credit unions to work out their differences. Nice to have on the record, but whether she or anyone else would block this legislation because credit unions aren’t provided parity remains to be seen.

Cheney’s testimony provided at that hearing, which was similar to his written testimony, had a little fire to it. The written testimony stated, “The banks would have Congress believe that expanding the Subchapter S tax preference would reduce operating costs for these banks and make them better able to compete with credit unions…Our examination of Subchapter S bank financial results for 2010 and for the first half of 2011 shows that these banks recorded depositor fees as a percent of average assets that were nearly two-thirds higher than the fees at other similar-sized non-Subchapter S banks. At the same time, Subchapter S banks recorded earnings (ROA) that were roughly three times higher than similarly sized C corporation commercial banks… In other words, these banks do not use their preferential tax treatment to better compete with credit unions.”

In NAFCU President/CEO Fred Becker’s written statement, he noted that “the Subchapter S federal tax break for banks is $2.05 billion for 2010, which is significantly greater [NAFCU’s emphasis] than the estimated value of the entire credit union tax expenditure ($1.27 billion).” He added it would “likely” increase the value of Sub S.

Still Cheney was clear in his remarks that CUNA was not opposing the provision. Becker’s statement said, “NAFCU has never previously opposed enhanced authorities for banks to better serve their customers” but never addressed the organization’s current stance.

CUs have not gotten anything to significantly benefit the industry on the Hill since H.R. 1151 and that of course had its trade offs. Banks have cut them off at the pass every time. They take clear stands, they are feared and they achieve a lot of what they want in Washington at least as it pertains to credit unions. Credit unions need to take stronger stands. Become feared.